China uranium claims fuel market scepticism

Has the time come to dump all your uranium investments? Certainly, if you
believe Chinese television.

Last week, Chinese state-owned TV said that the country's scientists had effectively solved all the world's nuclear problems. It laid claim to a technological breakthrough in nuclear-fuel reprocessing technology – one which would allow uranium to be used for 60 times longer than in current methods.

China National Nuclear Corp claimed it had developed a new process that would allow spent nuclear fuel to be reused, extending China's uranium resources to a staggering 3,000 years. China has more than 170,000 tonnes of uranium resources at the moment.

However, the announcement has been met with a significant amount of scepticism – especially from the markets. The uranium spot price rose after the announcement, trading at $66.25 (£42.50) in New York on Friday, compared with $62.50 at the end of December. If markets had believed what the Chinese said, then the price would almost certainly have plunged. The claims relate to a new process of making mixed oxide – or MOX – fuel. This is nuclear fuel containing more than one oxide of nuclear materials. It is a blend of plutonium oxides and uranium – whether pure, reprocessed or depleted. The use of MOX fuels is not new, however.

"MOX fuels are mainly used in the UK and France, but are not widespread because of two things. The first issue is that older nuclear power stations can't burn MOX – and the second is that MOX is significantly more expensive to use than actual uranium," said Edward Sterck, a uranium analyst at Bank of Montreal.

"China has just 3pc of world economic resources of uranium – and it has 26 plants currently being constructed," Nik Stanojevic, minerals analyst at Brewin Dolphin noted. Mr Stanojevic is also sceptical over the Chinese claims. "The Chinese have been buying uranium in the spot market recently. If they thought that uranium will be plentiful, why are they doing this?" he queried.

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A report on the MOX technology in the China Daily newspaper, a state-owned English-language publication aimed at foreigners, noted that the country's uranium needs were expanding rapidly.

"China will need to source more than 60pc of the uranium needed for its nuclear power plants from overseas by 2020, even if the country moves forward with a modest nuclear expansion plan," the newspaper said.

Uranium demand in China is expected to reach 20,000 tonnes annually by 2020, according to the World Nuclear Association. However, the country will be able to produce only about 2,400 tonnes of uranium a year by that time.

Mike Smith, a senior vice president at Ux Consulting, an industry research organisation which also monitors the uranium price, was more categorical in his dismissal of the report.

"The bottom line is there was no breakthrough. There will be zero impact on Chinese demand for uranium," he said.

There were also reports, quoting Mr Smith, saying that the announcement could actually be a political ruse to put pressure on the French. He noted that the Chinese were in the middle of talks with French nuclear giant Areva about a reprocessing technology transfer, but discussions had not been going well. He said this statement could be a way of pressuring Areva.

However, with both the uranium markets and China's intentions being pretty opaque, the possibility that their claims are true should be considered.

"Even if the Chinese have found a way to make the process of creating MOX much cheaper, it will be a decade or more before they will be able to commercialise the technology," Mr Sterck said.

Indeed, in a statement made in Chinese – not English – it was made clear this was just a pilot project.

"It is rare that an industry is destroyed by one single technological revolution – but it is something investors should monitor closely," said Mr Stanojevic. "I certainly wouldn't panic if I were holding uranium shares,"

Australian floods push up coal price

The floods in Australia are continuing to support the spot price for coal used in power plants, with exports dropping drastically last week. The price rose above $120 (£77) per tonne, as mines shut because of heavy rain. South African mines have also been affected by wet weather and loading delays.

"We expect Newcastle spot prices to peak above $50," said Credit Suisse analysts. "Some miners suggest it could take as long as 18 months for thermal and coking coal supplies to fully recover."